Introduction – following a tried and true playbook
Not following its usual practice, UPS (UPS) appointed a board member as CEO as of June 1: Carol Tome, the long-serving CFO of Home Depot (HD). This former banker helped lead HD through the aftermath of the housing bust. From a Great Recession low below $20, HD has soared above $275, while paying steadily rising dividends. The strategy there was to more or less freeze the store count, not expand into Europe, Asia or South America, and focus on optimizing operations. Operating margins rose, and HD was relatively early in emulating Amazon (AMZN) in utilizing technology in the service of selling “stuff.” I discussed this point two years ago in How Home Depot Is Moving Toward Tech To Drive Alpha.
HD’s recovery from the Great Recession and entry into a strong bull phase stemmed from optimizing its assets; becoming better rather than focusing on expansion first.
Operational improvement is now the theme at UPS.
I expect a similar outcome as at HD, and am overweight UPS not because of its strong ‘beat’ in Q2 but because I expect UPS to both grow revenues and expand profit margins, while raising dividends annually, in line with HD’s stellar performance since 2009.
This article walks the reader through my rationale for having gone from no exposure to UPS to an overweight position following its jump to around $140 after earnings were released.
Some readers will be aware that post-COVID, much of my investing has been in very high P/E, fast-growing companies, such as Tesla (TSLA) and Zoom (ZM), as well as expensive tech names such as NVIDIA (NVDA), Amazon (AMZN) and Microsoft (MSFT). Note I have been and out of AMZN and have once again taken profits (but I’m looking for a re-entry based on